News that nearly 300 were killed when a Malaysian Airlines plane crashed in eastern Ukraine came after the market close.

The ruble-traded MICEX pared early losses of 3.1 percent to close 2.3 percent down at 1,440.63 points; the dollar-traded RTS index was down 3.8 percent at 1,299.03 points.

Russian Prime Minister Dmitry Medvedev said the sanctions were "evil" and that these moves would not help Ukraine and would fuel anti-U.S. sentiment in Russia.

Shares in Rosneft pared losses to 4.3 percent after falling 6 percent. Oil-trading operations at Rosneft will not, however, be hurt by the sanctions, traders said.

Novatek was down 5.5 percent compared with an earlier decline of 9 percent. The company said its major projects would go ahead despite the sanctions.

"Despite the eye-catching headlines, the steps stop short of the much discussed, but yet not pursued, 'sectoral sanctions'," VTB Capital said in a note. "That said, for the first time they touch — even if only lightly — major Russian corporations."

The threat to Rosneft and Novatek from the sanctions is that Europe may follow suit and impose the same limitations on borrowing from European banks, Alfa Bank said in a note.

EU leaders said on Wednesday they would expand sanctions against Russia to target companies that undermine Ukrainian sovereignty and ask the European Investment Bank and the European Bank for Reconstruction and Development to suspend new lending.

Russia's Foreign Ministry reacted with disappointment that the European Union "succumbed to the blackmail of the U.S. administration and, contradicting its own interests, followed the path of sanctions" against Moscow.